Early Facebook Investor Sheds Majority of Company Stock

According to a regulatory filing on Monday, former PayPal CEO and early Facebook investor and board member Peter Thiel cashed out just under $400 million of stock in the social networking company last week. Although he was able to sell over $600 million of his Facebook stock in May, Thiel and other investors in Facebook were prohibited from shedding their stock until last week when lockup restrictions expired. Over the next nine months, over 1.5 billion additional Facebook shares could hit the market with the way the Facebook IPO was structured.

When the market closed on Tuesday, Facebook stock was valued at $19.14 per share. This share price, which is nearly half that of the original May IPO share price of $38, reflects the social network’s problems monetizing mobile users and wooing advertisers.

Thiel’s stock sale calls into question investors’ confidence in Facebook’s current reputation and future performance. Walter Price, RCM Capital Management (which does not own Facebook shares) portfolio manager observed that, “From a shareholder standpoint, if a VC is going to be on the board you’d like to think that they still have a large position in the company and that they’re interested in making it be more valuable.” Price also noted that Thiel’s stock sale “. . . sends a mixed message when they sell most of their stock and they still stay on the board.”

Facebook board of directors’ member Peter Thiel still holds company stock valued at roughly $107 million. Does Thiel’s decision to cash out Facebook stock reflect his opinion that his money would be better invested elsewhere or does it simply show that venture capitalists are vary of owning publicly traded stock? Do you think it is a conflict of interest for Thiel to remain on Facebook’s board of directors after selling the vast majority of his Facebook stock? Time will tell whether shareholders will insist that Facebook’s board be comprised of directors who are highly invested in the social network.